Options data is turning neutral to positive for long traders, who should be ready to capitalise if Nifty forms reversal formation
Last week, the market took a proper test of every trader and showed them where they stand. It tested the traders' patience, confidence, courage, and execution.
On June 17, Nifty was down nearly 200 points and on the day of weekly expiry, it rose 200 points. In between, the market remained highly volatile.
Technically, the market has achieved all set targets for the previous week. We were expecting 11,600 on the downside, which Nifty achieved in the first two days of trading. But, later, despite heavy hammering, it did not fall below 11,600.
Trading activity indicates 11,600 is significant and in case Nifty closes below the same, then it would invite further selling in the broader market.
Nifty could fall to 11450-11490 if it closes below 11,600 on a daily basis. However, we are not expecting Nifty to close below 11600, rather we expect a strong bounceback if Nifty falls in the region of 11,680-11,650 in the next 1-2 days.
Options data is turning neutral to positive for long traders, who should be ready to capitalise if Nifty forms reversal formation.
Sector and stock specific:
Major sectoral indices for banks, infrastructure and metals have formed a reversal formation after hitting support levels, but upward continuation is mandatory for confirmation.
Reliance Industries is forming Head and Shoulders formation at the top of the current up move, which is signalling at distribution.
Currently, RIL is trading at Rs 1,280 and it would validate the formation below Rs 1,220 on a closing basis. The strategy should be to trade short at every negative reversal formation or to reduce long leveraged positions.
On the other side, SBI and ICICI Bank have reversed from crucial support levels and have closed with bullish reversal formations on a weekly basis. Technically, we can expect a minimum 10 percent upside in given stocks in next 2-3 weeks.
Strategy for Nifty:
Buy Nifty between 11,680/11,670 keeping a final stop loss at 11,590 for the same. 11770, 11840 and 11930 would be hurdles.
The author is a senior VP (Technical Research), Kotak Securities.
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